You notice that the yield-to-maturity (YTM) of some zero-coupon Treasury bonds are:
Maturity 3 months 6 months 1 year 1.5 years
YTM 1.0% 1.7% 2.3% 3%
All of the YTMs are quoted as APRs with semi-annual compounding.
(a) Based on the YTMs above, what is the price of a 1-year zero-coupon corporate bond with a credit spread of 90 basis points and par value of $1,000?
(b) Would the YTM of a 1.5-year 2% coupon Treasury bond be more than, less than, or equal to 2.3%?
(c) Would the YTM of a 1.5-year 10% coupon bond be more than, less than, or equal to the YTM of a 1.5-year 5% coupon bond? Explain.